At 23 years old, Paul Gu has attended Yale, been awarded a $100,000 grant as a Thiel fellow, co-founded Upstart, attracted millions in venture capital money, and is earning a 6-figure salary as Head of Product. Wow – what were you doing at 23?

Surprisingly, Paul found it nearly impossible to get a good rate for a loan. The banks wouldn’t lend, Prosper rejected him, and Lending Club offered him a loan with an interest rate in the high 20s. What gives? Using traditional credit scoring metrics, Paul has less than 3 years of credit history and is deemed high-risk.

Paul and his team at Upstart came to the realization that he is not alone and that there is an entire category of select “thin file” borrowers who have been overlooked by the system. These are recent graduates who have entered into the workforce with very promising career trajectories.

In addition to credit and salary data, Upstart uses education-related variables to predict a borrower’s earning potential, employability and their propensity to repay the loan.

“We want to support those who just finished their education and are starting a job,” said Girouard, “In addition to looking at [your credit] and your income, we look at where you went to college, what your area of study was, how you performed academically.”

Since early 2013 Upstart has originated $3.5 million worth of income-sharing agreements to 309 people backed by 2,192 lenders. Upstart has used their intelligence in the income sharing business to formulate their new product that is launching today.

Introducing the Upstart Marketplace

Starting today, Upstart has launched a marketplace much like Lending Club and Prosper to offer three-year standard term loans available in all 50 states. Borrowers can request loans of $5,000 up to $25,000, and interest rates can range from 6.5% up to 20% APR.

Upstart’s new product crosses the boundaries of consumer and student loans, which means borrowers can use the funds for pretty much anything: to pay off credit cards, retire student loans, or pay tuition for a course.

Upstart’s investor marketplace will be available to accredited investors only and will offer fractional ownership in $100 increments. As you can see in the screen shot below, Upstart loans are given a letter grade and interest rate along with a progress chart to monitor funding levels. Investors can view details of each loan, but will not be able to see the identity of the borrowers.

Upstart also levels the field among individual and institutional investors by making all loans available on equal terms. In contrast to Lending Club and Prosper, Girouard said, all investors have access to every published loan since there is only a single pool of loans. Upstart’s platform offers lenders the ability to create filters for loans in which they’re interested. The investor, then, can automatically make a bid for those types of loans as they become available.

“Investors can set up as many rules as they want,” such as setting the maximum amount, risk grade of the loan, or even how the loan is (claimed to be) used, according to Girouard.

Borrower Acquisition Strategy

“We’ll have a steady flow of borrowers,” he continued. Upstart already has partnered with 13 coding bootcamps, which normally aren’t eligible for education loans, in the United States.

Borrowers, once verified and approved, can receive funds within 7 days, and can opt to defer their first payment for 3 or 6 months.

Aside from being able to discover early prime investments, Upstart has also structured itself to bolster loan repayment by not imposing fees for early repayment, and by educating borrowers on their finances and on how to improve their credit.

This education push has already paid off for Upstart’s investments, where they’ve “seen 3,056 unique repayments to backers in 14 months without a single default.”

“We understand that our borrowers are recent graduates, so we’re adding an educational component,” said Girouard.

Upstart is Well Positioned for A Borrower’s Life Cycle

Upstart is using educational data in a new way to bring something unique to market. They are able to expand the prime borrower market by uncovering a large overlooked pocket of borrowers. They are also in a great position to establish themselves early with borrowers who will need credit for many of life’s major purchases like a new car or a new home. While nothing has been announced, we can see how Upstart may be in a position to expand their offerings to other lending categories over time.

Paul Gu will be speaking at LendIt on May 6, and his panel will be available by webcast. We hope that he posts his loan request on Upstart. We will be the first in line to fund him!

Correction: The above post misidentified Paul Gu’s title. He is the Head of Product at Upstart. Also, Paul attended Yale University and has not graduated.

In this final installment in our state of p2p lending series we are looking at student loans. The idea of applying peer to peer lending to student loans has only been around a couple of years. But in that time there has been some dramatic changes. The two leaders in this niche, Fynanz and GreenNote have completely shifted their focus and have exited the space as far as investors are concerned. But there is one new comer, People Capital, that gives us some hope that p2p lending can work for student loans.

There is really only one option these days for peer to peer investors wanting to participate in student loans: People Capital. They have successfully come through one student lending season and are looking to increase loans in the coming year. They launched their online p2p platform in the summer of this year for the 2010-11 academic year. [Read more…]

Getting a good education just keeps getting more expensive. According to the College Board, the not-for-profit organization that created the SAT, annual expenses including room and board for a private university in 2007 was $23,000, up from $18,050 in 2006. The stats for a public university do not look much better – $9,980 in 2007, up from $7,650 in 2006, including room, board and financial aid.

To make matters worse, interest rates on private student loans are topping 16 percent in some cases. That’s if you can even get the loan. Citigroup and Bank of America pulled out of the student loan business in the spring and Wachovia recently reported it would stop financing undergraduate loans. Add the mortgage and stock market crises leaving fewer parents able to tap into savings, fewer endowments and scarcer scholarships, and what’s a cash-strapped parent or student to do?

Federally funded student loans are always the preferred way to borrow for college because of their low interest rates and deferred payment schedules. But if you don’t qualify or have tapped out this source, try a social lending site geared toward students.

What to expect at social lending site for students
Student social lending sites work much like mainstream social lending sites like Prosper.com. You post a profile asking for a certain loan amount and sit back and wait for lenders to fund your loan. The site consolidates all of the small, individual loans you receive, applies a single interest rate and disburses your payments to your lenders.

The biggest difference in a social lending site geared for students is that the money you raise goes to your school, not directly to you. (Nope, you can’t use the money to rent that apartment on the beach or spend spring break in Paris.) These specialized sites also offer student-friendly features as 10-year loan terms and deferred payments, which Prosper and LendingClub lack, despite their claim to offer student loans.

Mark Kantrowitz of FinAid.org, an information site for funding a college education, thinks peer to peer student lending is going to grow significantly in the years ahead, and is likely to catch on in other ways, too. “There is the potential here for colleges to set up their own peer to peer lending networks where they would connect alumni with current students as a way to increase enrollment,” he said.

Good grades = guaranteed loans and lower fees at Fynanz.com

Currently two social lending sites specialize in student loans: Fynanz and GreenNote.

Good students with solid credit histories already under their belt might prefer Fynanz, a stranger-to-stranger lending site. Student borrowers must have a FICO score of at least 640 or a co-signer. The site assigns each loan one of six possible grades based on the student’s academic characteristics, the institution, and whether they are enrolled full or part-time. The better the grade, the lower the upfront fee, which ranges from 2.9 percent to 6.9 percent of the loan amount.

On the plus side, Fynanz guarantees its loans, which attracts quality lenders’ and a lower interest rate for you. The higher the grade a loan has been assigned, the more of the loan Fynanz will guarantee, ranging from 50 cents to 100 cents on the dollar.

Fynanz’s up-and-coming competition, recently launched GreenNote, takes a more laid-back, personal approach. It does not offer lenders a guarantee, but it has no credit requirements and lets borrowers invite family and friends to contribute to a loan. It’s up to you whether your loan profile can be viewed publicly.

All loans are assigned an initial interest rate of 6.8 percent, which generous lenders can lower or even waive. It’s all about tapping into people who know and like you, says GreenNote CEO Akash Agarwal. (You invite people, those people go to people. It includes local employers in the area, community-based organizations, places of worship, sports teams, anything.)

Already have a loan lined up? Go Virgin

A third option worth noting if you already have your money lined up and just need to document it: Virgin Money USA, a loan servicing site aimed at formalizing pre-arranged loans between family and friends.

Virgin has some cool calculators aimed at students (the “Lender Blender” lets you see what your final interest rate would be after combining various types of loans including federal, bank, personal and even credit card advances).

Plus, Virgin’s Student Payback plan offers a processing fee break on up to 10 sequential loans, a boon for parents who plan to dole out money to their students a semester at a time.

Which one’s best?

With its lower fees, one interest rate for all, simple process, and no credit score requirement, GreenNote is probably the best choice for the majority of students looking to raise college funds through a social lending site. A hang-loose student-oriented site, GreenNote encourages students to stay in touch with lenders during their school career and offers lenders the opportunity to forgive all or part of loan, before it comes due.

With its loan guarantee and rating system, Fynanz is weighted more heavily in favor of lenders; however, it is the site’s ability to attract competitive lenders that results in interest rates as low as 3.5 percent.

For parents with financial means, good credit, or sources of equity funding, the Virgin Money approach is a good one. It allows parents to obtain loans at good interest rates and share those funds with the student. It keeps it (all in the family), but makes it official.

Graduate student Christina Christopher is happy with her choice. Christopher was entering the last year of her MBA program when she discovered she had maximized the amount she could receive in federal student loans. With time running out she turned to GreenNote.

(The process was very simple. All I did was create a profile, put in my situation and the time I needed the funds by, and the amount needed, send e-mails out to all the people I know, and within a month the funds were issued to the school.)

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Lend Academy has been bringing you all the news and information about peer to peer lending since 2010. Founded by Peter Renton, Lend Academy not only has the most active news site, but also the largest online forum and the first and most popular podcast in the industry.

The Lend Academy team loves peer to peer lending and our staff have all invested their own personal money in one or more of the platforms. Lend Academy Media is part of Cardinal Rose Group which also owns LendIt, the leading industry conference, and has a majority interest in NSR Invest.